DOF: Income tax cuts to make subcompacts, MPVs fairly priced

by Eric Tipan

June 30, 2017 11:18

Much has been made about the impending increase in the prices of automobiles because of the proposed excise tax but the Department of Finance (DOF) asserts that it will only really adversely affect luxury vehicles.

Speaking with members of the senate, DOF Undersecretary Karl Kendrick Chua made assurances that small cars and multipurpose vehicles (MPVs) will remain affordable to families because of the considerable personal income tax rate (PIT) cuts under the tax reform bill.

Chua explained that the aim of the excise tax system for automobiles under the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN) is to put in place a progressive system that will implement stiffer consumption taxes on the wealthy, thus a substantial increase in the price of luxury vehicles.

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As an example, Chua stated that a call center agent’s net income will increase by Php 22,000 a year and in a family setting where both parents are working, that’s an increase in annual net income by Php 44,000.

“If two of them are working, the couple will take home PHP 44,000. So the increase in the price of Vios and Mirage will be much less compared to the increase in the take-home pay of these families. And because the non-rich will amortize or borrow, and given the low interest rates, this is actually still going to be affordable,” said Chua.

The goal of TRAIN, according to Chua, is to simply slow down auto sales and not to ‘cripple’ the industry as expressed by some executives from the automotive industry.

He further defending his assumption by citing examples of vehicles under the government's Comprehensive Automotive Resurgence Strategy (CARS) program. "Entry-level models such as the Toyota Vios will only increase by P10,000 and the high-end model of the Mitsubishi Mirage only by P13,000 per unit," he said.

“We think that the overall impact (of TRAIN) is simply to slow down the sale of cars, but not to contribute to a contraction. We do not see that this tax will cripple the automobile industry,” added Chua.

Chua also pointed out that the revenue gained from TRAIN will help fund the government’s program to increase infrastructure to reduce vehicular congestion.

“We don’t think that the strategy going forward is simply to make cars affordable because we in the government believe that the key merit of development is not that the poor will have cars but the rich will take public transport -- and that is what we are proposing to do under the tax reform program,” Chua said.